Trump can’t stop trade with North Korea, but does have options

U.S. President Trump said on Sunday that the United States could consider stopping all trade with countries doing business in North Korea, in a move that could spell economic catastrophe for the pugnacious country.

One problem: It would mean economic disaster for the United States as well.

Despite years of economic sanctions and international condemnation, North Korea still conducts modest trade with a host of United States allies, including Brazil, Germany and Mexico.

But the North’s biggest partner by far is China, which accounts for about four-fifths of its trade and helps the country with its fuel, food and machinery needs.

China is also the largest trading partner of the United States, in a relationship worth nearly $650 billion a year in goods and services covering a range of items, like auto parts, apple juice and Apple’s widely anticipated new iPhone.

That makes cutting off all United States trade with China a nonstarter, experts say. But Trump’s extreme remark epitomises the tough choices that American policy makers face. While the United States and other countries have tightened sanctions and moved to cut off North Korea from the rest of the economic and financial world, Pyongyang continues its efforts to develop nuclear weapons and the missiles to deliver them.

The United States has limited options. It could more broadly target Chinese companies that do business in North Korea.

But that could prove ineffective against a Chinese government that worries that trade limits could worsen conditions in the North, making the situation there even more unpredictable.

“If it really started to send their economy into a tailspin, they could lash out in a more extreme way,” said John Delury, a professor at Yonsei University in Seoul.

North Korea’s test of a nuclear weapon on Sunday prompted White House officials to threaten new sanctions targeting businesses and countries that have continued to do business with Pyongyang. That prompted criticism from China on Monday, which called the idea of trade measures against it “unacceptable.”

“This is neither objective nor fair,” Geng Shuang, a spokesman for China’s Foreign Ministry, said at a daily news briefing.

In global trade terms, North Korea is basically a rounding error. Chinese trade with the North totaled only about $3 billion in the first seven months of 2017, roughly the same as last year, as China buys less coal, clothing and other goods.

Still, even as China buys less, it is exporting more. This year, despite new sanctions, stern warnings to China from Mr. Trump and a slew of weapons tests by the North, Chinese exports to Pyongyang grew more than 22 percent through July compared with a year earlier, in part because of rising sales of electrical equipment and machinery, according to data from IHS Markit, Global Trade Atlas, a research company.

China buys zinc, iron ore and other minerals from North Korea, as well as seafood and garments manufactured in the country’s textile mills.

China has also historically been a major buyer of North Korean coal for its steel mills, although this year it has cut back on coal imports ahead of tighter United Nations sanctions and after the United States said the trade was contributing funds to North Korea’s nuclear weapons program. In turn, China’s state-run companies and biggest brands provide products like oil and beer.

China also provides North Korea with one very important product: cash. North Korean workers go to China to earn and send back money. Chinese trade companies provide foreign currency.

That helps North Korea keep its economy running, which has improved somewhat under the country’s leader, Kim Jong-un, as he has embraced some more market-oriented policies. It has also provided the capital to expand a nuclear weapons and missile program increasingly capable of hitting the United States. A number of experts say those trading companies could make strong targets for sanctions.

“What you’re seeing roughly is a trade-based money-laundering scheme,” said David Thompson, a senior analyst at the Center for Advanced Defense Studies, a research company based in Washington.

Some analysts in the United States have called for new policies that exert pressure on a wider array of Chinese companies. Larger Chinese state-run banks and companies should be included because they are all ultimately controlled by the government, said Daniel Blumenthal, an analyst at the conservative American Enterprise Institute.

“The point would be for the Chinese Communist Party itself to feel the pain of its relationship with Kim,” said Mr. Blumenthal, referring to the North’s leader.

While obscure textile factories and border trading companies make up much of China’s trade with North Korea, a number of China’s largest brands have also occasionally shipped goods to the North in recent years, though the sales are quite small compared with those elsewhere. Some of the same companies also sell products in the United States.

Just about every prominent Chinese appliance maker has sold goods in North Korea, including TCL and Hisense. The two companies sold a range of products, including refrigerators, air-conditioner units and television screens and other electronics.

Midea, a company that took over the German robot maker Kuka last year despite some objections in Europe, has done sporadic business with North Korea. Most recently, in November, it shipped refrigeration units, air-conditioners, copper piping and other electronics.

Among China’s car companies, Great Wall, Chery and Geely have all shipped auto parts or vehicles to North Korea. During a parade this spring in honor of the birthday of Kim Il-sung, the country’s founder, a visiting journalist took photographs of trucks made by a company called Sinotruk tugging submarine missiles. The company has shipped $1.2 million in vehicles and parts to North Korea in the past several years.

The Chinese battery and electric carmaker BYD has done about $14 million in trade with North Korea since 2012 and the shipments have continued until recently.

In January, the company sent rubber products to the country, and in December, it sent vehicles. BYD is traded on Hong Kong’s stock exchange, and is backed by Warren Buffett, who owns a ten percent stake in the company.

In the summer of 2014, the Chinese beer maker Tsingtao shipped about $20,000 of beer to the country, along with outdoor umbrellas and glassware.

Still, any effort by the United States to come down on China’s trade with North Korea could backfire if it creates divisions among Washington, Beijing and Seoul.

“It would be great for them,” said Delury, of Yonsei University, referring to Pyongyang, adding: “North Korea would just feed that. They’d have started a trade war between China and the United States. It would be colossally foolish.”

Source: The New York Times